A Wink From The Fed

The Wall Street Journal reports (subscription required) that when the Federal Reserve Bank of New York pumped large sums of cash into money markets Friday to ease the credit crunch there, it gave a "wink" to banks and companies such as Fannie Mae and Freddie Mac that it expected to be offered as collateral mainly agency-based mortgage bonds.

"It spelled out to the dealer banks, with whom it deals directly, that 'for operational simplicity,' it will accept as collateral on its cash loans any type of ultrasafe bonds -- Treasurys, agency bonds or mortgage-backed securities issued or guaranteed by the federal agencies, such as the congressionally chartered housing-finance giants Fannie Mae, Freddie Mac and Ginnie Mae.

That sort of collateral is the third-best in terms of quality among the three types of securities the Fed accepts, the WSJ said.